Pillar 3a Pillar 3a: bank or insurance?

Save for retirement and on taxes. The benefits of pillar 3a are clear. But should you choose a bank or an insurance solution?

You can only win if you pay into pillar 3a – this is something that Mr. and Ms. Doe have come to realize. Whether with a bank or an insurance company, your savings are basically locked away until retirement. In return, you can deduct what you pay in from your taxable income, as tax offices do not distinguish between bank and insurance solutions.

Separate your savings and insurance

A pillar 3a plan with an insurance company combines savings with an insurance policy. You not only pay savings contributions for your later years, but also premiums for risk coverage for death or disability. Often, a waiver of premiums in the event of disability is also automatically insured, which means that the insurance company covers your pillar 3a contributions if you become unable to work. This increases the cost of your premiums. Since you pay premiums for risk coverage in addition to retirement savings contributions, your pillar 3a savings will be lower on retirement than with a 3a solution without risk coverage.

Bank solutions are more flexible

With a bank solution you do not have risk coverage, but you do have more flexibility. Additionally, with a bank you do not have to pay into pillar 3a every year. Nevertheless, regular payments make sense. You can compensate for the lack of insurance protection if necessary with separate risk insurance. Also, a pillar 3a plan with a bank does not have a fixed contractual end date. Insurance policies, by contrast, often expire at the same time as your retirement date. In the worst-case scenario, they have to be drawn out in the same year as your pension fund assets if you decide on a lump-sum payment from your pension fund. This can have negative effects on your tax burden due to progressive taxation.

Pros and cons at a glance

 

Bank

Insurance

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  • Flexibility on contributions
  • Flexibility on the withdrawal date
  • Transparency on contributions and pension assets
  • Easier to use in terms of supporting home ownership

  • Waiver of premiums in the event of disability
  • Lump-sum death benefit also insured
  • “Forced savings”

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  • No insurance coverage in the event of disability or death

  • Limited flexibility on contributions
  • Reduced surrender value on premature cancellation or reduction of the policy
  • Cancellation and transfer to another 3a foundation is associated with significant costs

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